China to see more property firms exit the market amid tough competition

Many companies that entered the sector after 2009 stimulus are forced out as profit margins dwindle

PUBLISHED : Wednesday, 10 June, 2015, 1:00am
UPDATED : Wednesday, 10 June, 2015, 1:00am

More than 100 listed firms in China divested from the property development business in the past five years, with the pace of such exits expected to accelerate as profit margins dwindle and those determined to stay forced to come up with a survival strategy, developers said.

That is the reverse of what happened in 2009 when many non-property firms flocked into the industry seeking easy and hefty profits amid the country's 4 trillion yuan stimulus package to boost economic growth after the global financial crisis. However, the number of property firms listed in Shanghai and Shenzhen fell below 200 last year, from 303 in 2009, according to data from consultancy China Real Estate Information Corp.

"I still think the real estate industry is much better than manufacturing," He Yadong, a vice-president of Hangzhou Robam Appliances, told a forum. "Housing demand will still be there as we have such a big population and there is huge room to improve property product quality."

Starting from a market correction early last year, almost every developer has been talking about industry consolidation where the big players become even stronger by acquiring smaller rivals.

"China's property market peaked in 2013," said Ouyang Jie, a senior executive with Shanghai-based developer Future Holdings. "If there was no policy support, the property market this year would definitely not be better than last year."

He said 65 cities including Shanghai saw slower growth in their net population after 2010 compared with the previous decade, in terms of average increase per year.

"The future will not be better than today," echoed Chen Xiaoping, a director of Jiangsu Zhongnan Construction Group. "The oversupply, fierce competition and constant exit of players we see today will become the new normal."

Industry restructuring is now led by top developers including China Vanke, Dalian Wanda Commercial Properties, Greenland Group and Evergrande Real Estate Group. They are turning asset-light by committing to minority stakes in property projects and teaming up with each other to specialise in what they are good at. Most developers are no longer enthusiastic about geographical expansion but are making more effort to increase their market share in existing cities.

However, whether they should expand into different territories like Evergrande did in the spring water and dairy businesses, or diversify into something related to the real estate sector, such as financial services and the internet, remains a hot topic for discussion.

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